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TMI Blog1979 (12) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... med deduction of a sum of Rs. 3,300 under s. 24(1)(iv) which at the relevant time allowed deduction " where the property is subject to an annual charge, not being a capital charge " for the amount of such charge. The assessee's contention was that under a deed of maintenance executed by him on April 27, 1963, he had undertaken to pay to his mother during her lifetime and after her to his father during his lifetime a sum of Rs. 275 per month and that the above amount had been charged on the income from the property belonging to him. The ITO allowed the deduction claimed by the assessee and computed the property income for each of the three years at Rs. 5,457 as returned by the assessee. However, the ITO proceeded to observe : " Since this charge is admissible against the income from house property, it is being allowed and is being separately considered for assessment as income from other sources according to the provisions of section 60 of the Income-tax Act, 1961. Since it is only the income which has been transferred without transferring the house property in question, this transfer is fully covered by section 60 of the Income-tax Act, 1961. The transfer of income of Rs. 3,300 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, of making a provision for their maintenance and he had decided that for such maintenance a charge should be created on his property. The first clause of the deed declares that the assessee had created an obligation on himself to pay to his mother a sum of Rs. 275 per month during her lifetime from April 1, 1963. By the second clause he committed and declared that if his father survived his mother, he would pay the sum of Rs. 275 to his father every month till his death. Clause (3) stipulated that a sum of Rs. 275 per month was created as a charge during the lifetime of the mother or the father, as the case may be. Under cl. (4) it was declared that the said charge in favour of his parents would be on a property comprised of Flat " B " over " A " of the building known as Saraswati Block occupied by a particular named tenant and fully described in the schedule and delineated in the plan annexed to the deed. Clause (5) provided that the parents, in respect of their respective rights of maintenance, would be entitled to receive and appropriate the sum of Rs. 275 per month from the present and future tenants of this portion of the property (in addition to the municipal taxes payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tarily disposes of it in a particular manner that would be only a case of application of income and that, therefore, a voluntary creation of a charge should not, strictly speaking, be deductible in the computation of the property income. It might be suggested that the provisions contained in the above clause should be construed in the light of the broad principle that where there is only an application of income, there can be no claim for exemption from tax or deduction in the computation of income. In fact this was the contention put forward on behalf of the revenue in CIT v. State Bank of India [1957] 31 ITR 545 (Cal) referred to earlier. Chakravartti C.J. observed in the course of the judgment in the above case : " It struck me at one time, as the argument proceeded, that, probably, the section could be reconciled with the ordinary notions of liability to income-tax, if it could be construed as contemplating only mortgages or charges existing at the date when the assessee had acquired the property. I must say, however, at once that the language employed by the legislature does not admit of such a limited construction, but is in every respect unqualified." Then, after referri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we hold." Thus, the position is that though perhaps, very strictly speaking and on broad principles, there may be no rationale in allowing the assessee a deduction in the computation of the income from a house property of amounts which he has voluntarily bound himself to disburse out of the income from property, the section provided therefor and until the section was amended some time ago by the Finance Act of 1968 even charges voluntarily created by an assessee came within the ambit of the reductions permitted under s. 24. Hence, in the present case, the ITO computed the income from property rightly after giving a deduction of the sum of Rs. 3,300 which represented an annual charge on the income from the property. We may mention that though Mr. M. L. Verma made an attempt to challenge the correctness of this decision of the ITO, we did not permit him to do so. The ITO had allowed the deduction and this was not an issue either before the AAC or before the Tribunal and it is not open to the Commissioner now to say that the ITO erred in allowing this deduction. However, the action of the ITO appears to have been justified by the decisions already referred to. We now come to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent or transfer made by the assessee the income may in law arise to another person, it will be treated as continuing to arise to the transferor himself. A transfer of income alone without there being a transfer of the source of that income is a mere application of profits. Thus, in Provat Kumar Mitter v. CIT [1961] 41 ITR 624 (SC), the assessee who was the registered holder of certain shares in a company assigned to his wife, by a deed of settlement, the right, title and interest to all dividends and sums of money which might be declared or which may become due and payable in respect of those shares for the term of her natural life and covenanted to deliver and endorse over to her any dividend warrant or other document of title to such dividends or sums of money and to instruct the company to pay such dividends and sums of money to her. For the assessment years in question the dividends declared on those shares were included in the income of the assessee notwithstanding the transfer effected by him. It was contended by him that, since the settlement was for the lifetime of his wife, the third proviso to s. 16(1)(c) of the 1922 Act would apply. The Supreme Court, however, held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the property being paid to the parents does not arise. Those provisions are only intended to protect the interests of the parents and the tenant in the event of their being compelled to realise the maintenance out of the income from the property on the assessee's failure to pay the same. In this view of the matter, it can be said that the document does not transfer any income and that, therefore, the provisions of s. 60 are not attracted. It, however, appears from the assessment order that the assessee had transferred all his properties in the name of his father. On the facts that the assessee was to have left for England and that on the eve of such departure he transferred all the other properties in the name of his father and made this provision for maintenance of his mother, the case appears to have proceeded on the footing that the rent from the property was thereafter collected by the parents. Section 63(b) provides that for the purpose of s. 60 the expression " transfer " would include any settlement, trust, covenant, agreement or arrangement. It could, therefore, be said that, taking into account the clauses of the maintenance deed as well as the above circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource the ITO has been obliged to give a deduction in respect of an item which he considers to be merely an application of income. What the ITO has done virtually amounts to a double taxation of the income from the property in question: once under the head " Income from property " and again under the head " Income from other sources ". Such double taxation cannot be permitted although it is true that while computing the statutory income under the head " Income from property " the assessee has been able to get a deduction for a sum of Rs. 3,300. To do so is merely an attempt by the revenue to get back by way of income from other sources an item which the assessee was entitled to deduct in the computation of his income from property. It is well settled that where income falls in a particular head its computation has also to be made under the same head. To give an example, if a property is actually fetching a rent of Rs. 15,000 per annum but the income from property has to be computed on the basis of a standard rent of, say Rs. 9,000 per annum, the surplus of Rs. 6,000 cannot be brought to tax as income from other sources. By the computation under the head " property income " on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter it had accrued to the assessee. It appeared that the charge over the property was created as a matter of convenience and a practical solution to the difficulty of the assessee who was residing outside India and of sending money from there every month. Section 24(1)(iv), as stood before the amendment of 1969, permitted deduction of annual charge from property income. On the face of it, there was no indication that such a charge should have been the creation of factors beyond the control of the assessee. The judicial pronouncements, therefore, have included within its ambit even those charges which were voluntarily created. This was of course prone to let loose infinite diversion of income after accrual. Any assessee could thereby create a charge in favour of his family and thus divert all his property income for its maintenance. It would appear that it was to set at rest this mischief that the Legislature introduced amendment in the year 1969 as to exclude from the purview of s. 24(1)(iv) voluntary charges or those capital in nature. One view can be that this amendment was clarificatory in nature as perhaps the Legislature felt that those provisions were not being interpreted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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